Trade ETFs

What is an ETF (Exchange Traded Fund)?In simple words, its a Mutual Fund but trades like a Stock. What does that mean!!! Typically, Mutual Funds cannot be traded like Stocks during the trading day. All Mutual Fund transactions(buy/sell orders) are executed at the end of the trading day irrespective of when the order was places during the day before the market close. On other hand, Stocks can be traded anytime of the trading day as long as market is open for trading. ETF is like a Mutual Fund but trades like a Stock. Since its like a Mutual Fund, it has Fund fees (such as expense ratio, etc) but no restrictions of holding period, we can trade ETF anytime of the trading day as long as market is open. Also the unit price is less as compared to minimum investment required in a Mutual Fund. ETF are new to Indian markets and hence as of today we do not have many ETFs listed on BSE or NSE. Nonetheless, they exist and can be used as a investment choice.

I am Confused!!!No worries, always ask questions and try to understand the basics. Remember, we don't need to be financial analyst but just need to know where to put our money to work for us.

On our mind and how it fits our Strategy...

Does it mean, I should not trade Mutual Funds?No. ETFs are fairly new financial instruments in Indian Markets and they are similar to Mutual Funds with some advantages and disadvantages. We just want to provide information so that we are aware of such financial investment choices.What about transaction Fees?Typically, most brokerage firms apply same transaction fees for trading ETFs as they would charge us to trade Stocks. In many cases, Mutual Funds transaction fee is higher along with minimum investment amount.

What about risk?Law of Economics: Higher Risk = Higher GainsMutual Funds are governed by many rules and regulations hence less riskier than ETFs. Also ETFs are relatively new compared to Mutual Funds. ETFs are not actively managed and also known as passive funds, hence the expense ratio is lower compared to Mutual Funds.

Can we use our Strategy for ETFs?YES. Since ETFs are new in Indian financial markets, we do not have good sites which can provide good performance results with parameters on listed ETFs. You will have to do your own analysis and comparison between various available ETF choices.

How to trade ETFs using our Strategy?

Essentially we only have 3 types of ETFs in todays Indian Market: Index ETF, Commodity ETF and Money Market ETFHow to choose right list of ETFs for right kind of market!!!